Britain's three biggest electricals retailers have promised the competition watchdog they will improve the transparency of the extended warranties market to avoid a full-blown investigation by regulators.
The Office of Fair Trading (OFT) said on Tuesday its third study in just over a decade of the 1 billion pounds a year extended warranties market found consumers may not be getting the best value for money.
To address the watchdog's concerns Dixons, Comet and Argos, have offered legal undertakings to improve the information they provide to shoppers, including on the availability of alternative warranty providers.
They have also pledged to establish, maintain and publicise an extended warranties comparison website, to make shopping around easier, and promised mystery shopping exercises to ensure shoppers get accurate information from staff.
Extended warranties for electrical goods, which are extremely profitable for retailers, have long been criticised by British consumer groups.
They argue their price is often disproportionate to the cost of the electrical item covered and the likelihood of the item ever needing to be repaired as technological improvements result in increased reliability.
Critics also point out that most manufacturers already provide one-year guarantees on products, while consumers are often covered for breakages on their standard household goods insurance policies.
The OFT said it will now consult consumers and interested parties on whether to accept the undertakings instead of referring the market to the Competition Commission (CC) for a detailed investigation. It expects to reach its final decision in the spring.
Millions of extended warranties are sold in the UK each year and we remain concerned that, despite recent improvements, this market does not work as well as it could for consumers, said Ann Pope, director in the OFT's goods and consumer group.
If these undertakings are accepted by the OFT it would allow us to address the competition concerns more quickly and also reduce the burdens of further, detailed investigation.
(Reporting by James Davey.; Editing by Rhys Jones and Jane Merriman)